Management Accounting and Organizational Structure Notes
Learning Objectives
Understand the module, assessment, and requirements to complete the module.
Explain key concepts:
Definition of Management Accounting.
Definition of an Organisation.
Structure of organisations.
Importance of understanding how different organisations operate for accountants.
What is Management Accounting?
Definition: Management Accounting = Management + Accounting.
Accounting Defined:
A process involving:
Identifying, Measuring and communicating economic information.
Aiding informed judgments and decisions.
Users of Accounting Information:
Investors
Managers
Employees
Government
Creditors
Management Defined
Management: A process involving:
Planning
Decision Making
Organising
Leading
Motivating
Controlling resources (financial, human, physical, information).
Key Points:
Integrating activities toward achieving goals.
Importance of data for decision-making
Functions of Management
Key Functions include:
Planning
Identify objectives.
Develop alternative courses of action.
Decision-Making
Evaluate alternatives.
Select and implement the best alternative.
Controlling
Compare actual performance with planned performance.
Respond to deviations from the plan.
Revisiting Management Accounting
Purpose: Supports internal decision-making processes.
Characteristics:
Focus on future implications.
Flexible and relevant data.
Timeliness over precision.
Emphasis on organizational segments.
Evolution of Role:
Early role focused on data gathering and past performance.
Changed due to:
Rise of Enterprise Resource Planning Systems.
Technological advancements.
Increased focus on ethics; now a partner in organizational value creation.
Organisation Defined
Definition (Schein, 1966):
Rational coordination of activities among people to achieve common goals.
Essential traits include division of labor and hierarchy of authority.
Importance of Managing Organisations
Objectives:
Groups of people work together toward defined objectives.
Requires structure to facilitate and coordinate efforts.
Reasons for Management:
Manage conflicting interests.
Maximize objectives.
Ensure smooth operation.
Maintain organizational control and performance measurement.
Types of Organisations
Classification Can Be Based On:
Nature of Operations:
Manufacturing
Merchandising
Service
Legal Status:
Sole Proprietorship
Partnership
Corporation
Purpose:
For-profits
Non-profits
Dual purpose.
Principles of Organisation
Three Key Principles:
Hierarchy: Structure of management levels (tall vs flat).
Span of Control: Number of subordinates reporting to a manager (wide vs narrow).
Chain of Command: Number of management levels (long vs short).
Organisation Structures
Tall Structure:
More hierarchical, narrower span of control.
Example: Managers have fewer subordinates.
Flat Structure:
Fewer hierarchical levels, wider span of control.
More subordinates per manager.
Functional Structure:
Divided by function (e.g., Finance, Marketing).
Geographical Structure:
Divided by location (e.g., Northern/Southern England).
Matrix Structure:
Dual reporting lines (e.g., project and functional managers).
Informal Structures:
Evolve outside of formal structure (e.g., friendship groups).
Role of Management Accountant
Distinction Between Roles:
Accountants support management in decision-making.
Possibility of overlapping roles between management and accounting.
Why Accountants Need to Understand Organisations
Impacts on Decision-Making:
Financial decisions require understanding the context of organization.
Knowledge of Organisational Models:
Helps in analyzing data and diagnosing issues.
Influence on Financial Views:
Affects cost categories and performance measurements.
Summary and Next Steps
Reviewed key concepts:
Module structure and assessment.
Basics of Management Accounting.
Types and structures of organisations.
Upcoming topics include Management Accounting and its environment.
Advantages of group collaboration for further study and understanding.